M&A news: First publicly reported failure-to-file accusation in COMESA

Commission goes after Dutch paint manufacturer in Uganda in supra-national enforcement action threat

By AAT staff

The African expansion saga of Japanese paint manufacturer Kansai continues, albeit not in Southern Africa (after having travailed through a hostile takeover of South African paint company Freeworld Coatings and obtaining a majority stake in Zimbabwean competitor Astra Industries in 2010 and 2013, respectively): the current Kansai-related antitrust story is a COMESA one, which comes to us from East Africa.

As was reported back in 2013 in industry publication CoatingsWorld, Kansai had set its sights on expanding into Eastern Africa as well, focussing on the Sadolin brand (formerly owned by AkzoNobel and since its private equity buy-out produced under a continuing AkzoNobel licence and under the parent label Crown Paints).

This has now changed, says competition attorney Andreas Stargard with Primerio Ltd.: “Recently, the COMESA Competition Commission had become aware of press reports that AkzoNobel had withdrawn its Kansai/Sadolin licence in Uganda (a COMESA member state) and effectively entered into — or planned to enter into — a new agreement with an unnamed ‘local producer’.”

Mr. Stargard, who practices competition law with a focus on African companies and jurisdictions, points out that the COMESA merger-notification regime requires a mandatory filing under certain conditions, such as those affecting 2 or more member states and involving businesses with at least $10m in combined regional revenues.

“Whilst the COMESA review is non-suspensory (meaning the parties must notify, but can go ahead and implement the transaction prior to the termination of the CCC’s antitrust review), the notification itself is mandatory.  A failure-to-file can result in significant fines of up to 10% of combined turnover, as well as the regional annulment of the merger within the COMESA countries.

This is what has now happened with Mr. Lipimile’s Sept. 19th letter to AkzoNobel: the CCC chief warned the company that it would risk voiding any contracts if it failed to make a ‘curative’ retroactive filing by yesterday, Monday, 25 September 2017.”

The CCC’s letter to the Dutch paint giant reads in relevant part: “Kindly be informed that the COMESA competition commission has become aware through the media that Akzo Nobel Powder Coatings has entered into sales, manufacturing and distribution agreements with a local paint manufacturer in Uganda.  I wish to inform you that, mergers and any other forms of agreements between competitors are required to be notified to the Commission….without such notification, and subsequent approval by the Commission, such transactions are null and void ab initio and no rights or obligations imposed on the participating parties shall be legally enforceable in the Common Market.”

As to the likelihood of any notification having been made — or at least made satisfactorily and completely —  Andreas Stargard observes that:

“By any antitrust lawyer’s standards, scrambling to make a filing within less than a week, as seems to be required by George’s letter here, is a tall order — merger notifications usually require significant preparatory work, including data analysis, document collection, and interviews with the business people to advance to a final ‘filing’ stage.  To do so in 6 calendar days is extremely difficult.”

He concludes that, “as COMESA is still a relatively young regime in terms of merger filings — with few resources at hand to manage notifications in and of themselves, much less enforcement actions — we expect that the CCC and the parties will somehow arrive at an amicable settlement in this matter.”

Advertisements

The African WRAP – SEPTEMBER 2017 Edition

Since our June 2017 Edition of the African WRAP, we highlight below the key competition law related topics, cases, regulatory developments and political sentiment across the continent which has taken place across the continent in the past three months. Developments in the following jurisdictions are particularly noteworthy: Botswana, Kenya, Mauritius, Namibia, Tanzania and South Africa.

[AAT is indebted to the continuous support of its regular contributors and the assistance of Primerio’s directors in sharing their insights and expertise on various African antitrust matters. To contact a Primerio representative, please visit Primerio’s website]


Botswana: Proposed Legislative Amendments

Introduction of Criminal Liability

The amendments to the Competition Act will also introduce criminal liability for officers or directors of a company who causes the firm to engage in cartel conduct. The maximum sanctions include a fine capped at P100 000 (approx. US$10 000) and/or a maximum five year prison sentence.

Fines for Prior Implementation

Once finalised, the legislative amendments will also introduce a maximum administrative penalty of up to 10% of the merging parties’ turnover for implementing a merger in contravention of the Act. This would include ‘gun-jumping’ or non-compliance with any conditions imposed on the merger approval.

Restructuring of the Authorities

Proposed legislative amendments to the Botswana Competition Act will likely result in the Competition Commission’s responsibilities being broadened to include the enforcement of consumer protection laws in addition to antitrust conduct.

Furthermore, there is a significant restructuring of the competition agencies on the cards in an effort to ensure that the Competition Authority – which will become the Competition and Consumer Authority (CCA) – is independently governed from the Competition Commission. Currently, the Competition Commission governs the CA but the CA is also the adjudicative body in cases referred to the Commission by the CA.

The proposed amendments, therefore, seek to introduce a Consumer and Competition Tribunal to fulfil the adjudicative functions while an independent Consumer and Competition Board will take over the governance responsibilities of the ‘to be formed’ CCA.

South Africa

Information Exchange Guidelines           

The Competition Commission has published draft Guidelines on Information Exchanges (Guidelines). The Guidelines provide some indication as to the nature, scope and frequency of information exchanges which the Commission generally views as problematic. The principles set out in the Guidelines are largely based, however, on case precedent and international best practice.

The fact that the Commission has sought to publish formal guidelines for information exchanges affirms the importance of ensuring that competitors who attend industry association meetings or similar forums must be acutely aware of the limitations to information exchanges to ensure that they do not fall foul of the per se cartel conduct prohibitions of the Competition Act.

Market Inquiry into Data Costs

The Competition Commission has formally initiated a market inquiry into the data services sector. This inquiry will run parallel with the Independent Communications Authority of South Africa’s market inquiry into the telecommunications sector more broadly.

Although the terms of reference are relatively broad, the Competition Commission’s inquiry will cover all parties in the value chain in respect of any form of data services (both fixed line and mobile). In particular, the objectives of the inquiry include, inter alia, an assessment of the competition at each of the supply chain levels, with respect to:

  • The strategic behaviour of by large fixed and mobile incumbents;
  • Current arrangements for sharing of network infrastructure; and
  • Access to infrastructure.

There are also a number of additional objectives such as benchmarking the standard and pricing of data services in South Africa against other countries and assessing the adequacy of the regulatory environment in South Africa.

Mauritius

Amnesty re Resale Price Maintenance

The Competition Commission of Mauritius (CCM) has, for a limited period of four months only, granted amnesty to firms who have engaged in Resale Price Maintenance. The amnesty expires on 7 October 2017. Parties who take advantage of the amnesty will receive immunity from the imposition of a 10% administrative penalty for engaging in RPM in contravention of the Mauritius Competition Act.

The amnesty policy followed shortly after the CCM concluded its first successful prosecution in relation to Resale Price Maintenance (RPM), which is precluded in terms of Section 43 of the Mauritius Competition Act 25 of 2007 (Competition Act).

The CCM held that Panagora Marketing Company Ltd (Panagora) engaged in prohibited vertical practices by imposing a minimum resale price on its downstream dealers and consequently fined Panagora Rs 29 932 132.00 (US$ 849,138.51) on a ‘per contravention’ basis. In this regard, the CMM held that Panagora had engaged in three separate instances of RPM and accordingly the total penalty paid by Pangora was Rs 3 656 473.00, Rs 22 198 549.00 and 4 007 110.00 respectively for each contravention.

Please see AAT’s featured article here for further information on Resale Price Maintenance under Mauritian law

Tanzania

Merger and Acquisition Threshold Notification

The Fair Competition Commission has published revised merger thresholds for the determination of mandatorily notifiable thresholds. The amendments, which were brought into effect by the Fair Competition (Threshold for notification of Merger) (Amendment) Order published on 2 June 2017, increases the threshold for notification of a merger in Tanzania from TZS 800 000 000 (approx.. US$ 355 000) to TZS 3 500 000 000 (approx.. US$ 15 600 000) calculated on the combined ‘world-wide’ turnover or asset value of the merging parties.

Kenya

            Concurrent Jurisdiction in the Telecommunications Sector

In June 2017, Kenya’s High Court struck down legislative amendments which regulated the concurrent jurisdiction between the Kenya Communications Authority and the Competition Authority Kenya in respect of anti-competitive conduct in the telecommunications sector.

In terms of the Miscellaneous Amendments Act 2015, the Communications Authority was obliged to consult with the Competition Authority and the relevant government Minister in relation to any alleged anti-competitive conduct within the telecommunications sector, prior to imposing a sanction on a market player for engaging in such anti-competitive conduct.

The High Court, however, ruled that the Communications Authority is independent and that in terms of the powers bestowed on the Communications Authority by way of the Kenya Communications Act, the Communications Authority may independently make determinations against market participants regarding antic-competitive conduct, particularly in relation to complex matters such as alleged abuse of dominance cases.

Establishment of a Competition Tribunal

The Kenyan Competition Tribunal has now been established and the chairperson and three members were sworn in early June. The Tribunal will become the adjudicative body in relation to decisions and/or taken by the Competition Authority of Kenya.

The Operational Rules of the Tribunal have not yet been published but are expected to be gazetted soon.

Introduction of a Corporate Leniency Policy

The Competition Authority of Kenya (CAK) has finalised its Leniency Policy Guidelines, which provide immunity to whistle-blowers from both criminal and administrative liability. The Guidelines specifically extend leniency to the firm’s directors and employees as well as the firm itself.

Only the “first through the door” may qualify for immunity in respect of criminal liability, but second or third responds would be eligible for a 50% and 30% reduction of the administrative penalty respectively, provided that provide the CAK with new material evidence.

It should be noted, however, that receiving immunity from criminal prosecution is subject to obtaining consent from the Director of Public Prosecution as well. As per the procedure set out in the Policy Guidelines, the Director pf Public Prosecutions will only be consulted once a leniency applicant has already disclosed its involvement in the cartel and provided the CAK with sufficient evidence to prosecute the other respondents.

It is not clear what powers the Director of Public Prosecutions would have, particular in relation to the evidence which has been provided by the leniency applicant, should either the CAK or the Director refuse to grant immunity from criminal prosecution.

Namibia

Medical aid schemes

In a landmark judgment, the Namibian Supreme Court overturned the High Court’s decision in favour of the Namibian Association of Medical Aid Funds (NAMAF) and Medical Aid Funds (the respondents) finding that the respondents did not fall within the definition of an “undertaking” for the purpose of the Namibian Competition.

Despite the substantial similarities between the Namibian and the South African Competition Act, Namibia’s highest court took a very different interpretative stance to its South African counter-part and held that because the respondents did not “operate for gain or reward” they could not be prosecuted for allegedly having  engaged in collusive behaviour in relation to their ‘tariff setting’ activities in terms of which the respondents collectively  determined and published recommended bench-marking tariffs for reimbursement to patients in respect of their medical costs.

 

 

Kenya Corporate Leniency Policy: Immunity for both Administrative and Criminal Liability on the Table

By Michael-James Currie

The Competition Authority of Kenya (CAK) has finalised its Leniency Policy Guidelines (Guidelines) as published in the Government Gazette in May 2017. This follows amendments to the Kenyan Competition Ac which now caters for the imposition of a maximum administrative penalty of 10% of a respondent’s turnover if found to have engaged in cartel conduct.

Unlike its South African counter-part, the CAK has sought to provide immunity to whistle-blowers who are “first through the door” from both criminal and administrative liability. A key proviso in respect of obtaining immunity from criminal liability, however, is that the Director of Public Prosecution must concur with the CAK.

The South African Competition Commission’s Corporate Leniency Policy only offers immunity in respect of administrative penalties. Accordingly, directors who caused or knowingly acquiesced in cartel conduct may be criminally prosecuted under South Africa’s leniency policy despite being the whistle-blower.

It should be noted that the CAK will only engage the Director of Public Prosecution when granting conditional immunity. At this stage of the leniency application, the applicant would already have had to disclose its involvement in the cartel conduct and provide the CAK with substantial evidence of the relevant conduct sufficient to establish a contravention of the Competition Act.

Accordingly, the Guidelines do not cater for the possibility that the Director of Public Prosecution may not be willing to forego criminal prosecution in respect of the leniency applicant. It is, therefore, not clear whether the evidence which was disclosed to the CAK as part of a leniency application may be used against the applicant should the Director of Public Prosecution not grant immunity in respect of criminal liability.

In this regard, it would have been useful if the Guidelines catered for this risk. For instance, by expressly affirming that the Director of Public Prosecution would abide by the CAK’s recommendations unless there are compelling reasons not to. Absent this assurance, potential leniency applicants may be reluctant to approach the CAK for leniency until there is, at the very least, a clear indication of the Director of Public Prosecutions involvement in this process.

A welcome feature of the CAK’s Guidelines, however, is that fact that the Guidelines specifically extend leniency to a firm as well as to the firm’s directors and employees. The inherent conflict which may arise between the interests of the company versus the interests of the relevant directors, therefore, has been removed.

A further significant aspect of the Guidelines is that the Guidelines do not limit the granting of leniency (in respect of administrative penalties) to the respondent who is ‘first through the door’ only. A second or third respondent would also be eligible for a reduction of the administrative penalty of 50% and 30% respectively, provided the CAK is provided with material “new evidence”. Only a respondent who is ‘first through the door’, however, will qualify for immunity in respect of criminal liability – provided the respondent is not the “instigator” of the cartel.

The Guidelines also provide a framework which sets out the process which must be followed in applying for leniency including the steps which must be taken in respect of ‘marker’ applications.

As to who may apply for leniency, it is noteworthy that while a parent company is entitled to apply for leniency on behalf of its subsidiary, the reverse is not true on the basis that a subsidiary does not control the parent company. Accordingly, in fully fledged joint ventures for example, only one of the parties to the JV may apply for leniency (to the extent that the JV contravenes the Competition Act) and, therefore, the parent company should be the entity applying for leniency and not the legal entity which is in fact the party to the JV.

[Michael-James Currie is a competition law practitioner practicing in South Africa as well as the broader African region]

Kenya: Recent Amendments to the Act adds an Interesting Dimension to the Abuse of Dominance Provisions

Introduction of Abuse of ‘Buyer Power’ Provisions Muddies the Water

Ruth Mosoti

By Michael-James Currie and Ruth Mosoti

currie2

In November last year, the editors of Africanantitrust indicated that a number of amendments to the Kenya Competition Act of 2010 were being proposed by way of the Competition Amendment Bill (Amendment Bill) in the article Competition Amendment Bill to bring about Radical changes to the Act

The Amendment Bill was assented to by the President in December 2016 and the amendments are, therefore, effective.

Although most of the amendments which are particularly noteworthy were addressed in the above article, a particularly noteworthy amendment, and very much the focus of this article, is the newly introduced prohibition of an abuse of “buyer power”. In this regard, Section 24 of the Act, which deals with abuse of dominance generally, has been amended to also cater for an abuse of “buyer power.”

Section 24 of the Act was, even prior to the introduction of “buyer power” a particularly challenging provision to interpret and it has not been clear how the provisions relating to an abuse of dominance would ultimately be assessed.

By way of background, the definition of “dominance” in the Act, effectively states that a firm will be considered dominant if that firm has greater than 50% market share

The Act goes on to list, without being exhaustive, a number of practices which would typically constitute an abuse of dominance including:

  • imposing unfair purchasing or selling prices;
  • limiting or restricting output, market access or technological advancements;
  • tying and/or bundling as part of contractual terms; or
  • abusing intellectual property rights.

The Act does not provide further guidance as to what would precisely constitute an “abuse” of dominance and under what circumstances a purchasing or selling price would be deemed to be “unfair”.

The abuse of dominance provisions do not necessarily, therefore, appear to be directly linked to the promotion or maintenance of competition in the market. Once it is shown that a firm has more than 50% market share, firms are in treacherous terrain as the threshold for engaging in “abuse” of dominance is relatively low when compared to many other comparable jurisdictions which generally cater for a rule of reason defence or at least provide greater guidance as to what conduct would constitute a per se violation.

By way of an example, in terms of the South Africa Competition Act, a dominant firm is per se prohibited from charging an “excessive price”. The South African Competition Act does, however, define an “excessive price” as one which “bears no reasonable relation to the economic value thereof”. Despite this definition, further guidance has been sought but the competition authorities as to what, in turn, constitutes a “reasonable” and “economic value.”

Over and above certain identified acts of abuse of dominance, the South African Competition Act also includes for a “catch-all” abuse of dominance provision. However, the conduct will only amount to an “abuse” if there is an anti-competitive effect which cannot be justified by a rule of reason analysis.

The comparison with the South African Competition Act is useful as the Kenyan Competition Act does not provide for a similar assessment as does its South African counter-part. For instance, it is not clear how predatory pricing or excessive pricing would be evaluated under the Kenyan Act. Presumably this would fall under the preclusion of charging an “unfair” selling price, which leads one back to the question as to what constitutes an “unfair” price.

In addition to the above, the recent addition of “buyer power” to the abuse of dominance provisions has added to the complexity and risk to firms on the procurement side.

“Buyer power” is defined as the “the influence exerted by an undertaking in the position or group of undertakings in the position of a purchaser of a product or service to obtain from a supplier more favourable terms, or to impose long term opportunity costs including harm or withheld benefit which, if carried out, would be significantly disproportionate to any resulting long term cost to the undertaking or group of undertakings.

Furthermore, in considering whether a firm has “buyer power” the following factors will be considered:

  • the nature of the contractual terms;
  • the payment requested for access infrastructure; and
  • the price paid to suppliers.

Accordingly, the crux of the rather cumbersome definition is that an undertaking will only be considered to have “buying power” if that undertaking(s) has simultaneously actually abused its’ buying power. In other words, there is no distinction between what constitutes “buying power” and what constitutes an “abuse” of buying power. The Act’s definition of “buying power” is, therefore, all encompassing.

Although the above definition is somewhat unclear, it should be noted that the Competition Authority of Kenya, together with Parliament and other stakeholders intend developing rules which would hopefully clarify how these provisions will ultimately be evaluated.

A further important point to note is that it is not a requirement that a firm be ‘dominant’ in order to be considered to have “buying power”. Whether it was the intention of the legislator to require a firm to first be ‘dominant’ before it could be prosecuted for “abuse of buyer power” is not entirely clear. The definition of “buying power” is remarkably silent on this issue.

The fact that the preclusion of an abuse of buyer power necessitates that a firm be dominant could be inferred by the fact that provision is inserted under Section 24 (the abuse of dominance provisions).

However, the definition of “buyer power” caters for a situation where a group of undertakings, such as when a buying group, is formed, exert buyer power, the group commits an offence. Accordingly, it may have been that the legislator was contemplating a situation in which a group of undertakings, such as a buying group collectively meets the ‘dominance’ threshold (i.e. a greater than 50% market share).

Alternatively, it could have been the intention of the legislator that the abuse of buyer power has no direct link to dominance as such and that once a firm or group of firms satisfy the definition of “buyer power”, irrespective of their market shares, the provision is triggered.

In a number of developing countries such as Turkey, South Africa and Botswana have conducted market inquiries into the grocery retail sector. Although the focus of these inquiries are relatively broad, a common focus of all the market inquiries in this sector relates to the role that the large retailers play in the market. In particular, suppliers and competition agencies are often concerned with the buying power which large retailers could exert on suppliers and that the trading terms are unfair, particularly for smaller retailers who are not always in a position to pay for shelf space, access fees or offer the discounts demanded by the retailers.

In many instances, however, the large retailers are not ‘dominant’ and a complainant would need to demonstrate that the buying power exerted by the large retailer is in fact anti-competitive.

The Kenyan Competition Authority may have thought to pre-empt this challenge and therefore included the “abuse of dominance” provisions without requiring a firm to actually be dominant for the provision to be triggered. Furthermore, the definition of “buying power” and the absence of any requirement that the conduct must in fact be anti-competitive may have been an attempt by the legislator to lower the threshold in an effort to assist a complainant in cases where a purchaser, such as a large retailer, exerts “buyer power”, but is not “dominant” in the market.

The absence of any objective qualification to assess when a firm has exerted “buyer power” in an “unfair” manner may open the litigation floodgates. A further reason why it is important that the authorities publish rules to assist with the interpretation and implementation of the “abuse of buyer” power provisions.

In terms of enforcement, the Act was previously silent on the role of the Authority upon the conclusion of an abuse of dominance investigation and the only option lay on criminal prosecution of the offending undertaking. The recent amendments to the Act now allows the Authority to impose fines of up to 10% of the annual turnover of the offending undertaking(s).

SOUTH AFRICA: RECORD-BREAKING FINE IMPOSED ON ARCELORMITTAL SOUTH AFRICA LIMITED

By AAT Senior Contributor, Michael-James Currie.

The Competition Commission and South African steel producer, ArcelorMittal South Africa Limited (ArcelorMittal), have agreed to settle six complaints against ArcelorMittal for R1.5 billion (approximately US$ 112 million), in what is the largest (agreed) administrative penalty imposed in South Africa.

The penalty (by consent order) represents just under 5% of ArcelorMittal total turnover (including chemicals) for 2015.

The allegations which were brought against ArcelorMittal included allegations of price fixing and market allocation in what was termed by the Competition Commission the “steel cartel”.

In terms of the settlement agreement, ArcelorMittal admitted to contravening section 4(1)(b) of the Competition Act and will pay not less than R300 million per annum for five years from 2017. Furthermore, ArcelorMittal has undertaken to invest approximately R4.6 million into the South African economy for the next 5 years (provided the prevailing economic conditions render such investment feasible). Interest will be charged on the outstanding amount, interest starting to run 17 months after the finalisation of the settlement agreement.

In addition to the cartel conduct, the Commission had also instituted a complaint alleging the dominant steel manufacturer had engaged in excessive pricing. Although ArcelorMittal did not admit to wrongdoing in relation to the abuse of dominance allegation, the parties nevertheless agree that ArcelorMittal would not generate earnings before interest and tax of over 10% for the next 5 years (subject to certain exceptions).

The Competition Commission’s press release states the following:

ArcelorMittal admits that it engaged in collusion with CISCO, Scaw and Cape Gate by fixing prices and discounts, allocating customers and sharing commercially sensitive information in the market for the manufacture of long steel products, in contravention of the Competition Act. ArcelorMittal also admits that it fixed the purchased price of scrap metal with Columbus Steel, Cape Gate and Scaw. In respect of the flat steel complaint and the Barnes Fencing complaints, ArcelorMittal admits the conduct as alleged by the Commission but does not admit that this conduct constituted a contravention of the Competition Act. In relation to the pricing complaint, ArcelorMittal does not admit that it acted in contravention of the Competition Act.

The investigation and settlement agreement follows a leniency application brought by another respondent, Scaw Metals.  There is little doubt that the Competition Commission’s corporate leniency policy has permitted the Commission to uncover and successfully prosecute a number of cartels.   As previously reported on AAT, the risk remains that the recent introduction of criminal liability (on directors or persons having management authority)  for engaging in cartel conduct, may dampen the use of the whistle-blower regime (absent any formal immunity from criminal prosecutions).

The settlement agreement does, however, bring finality to all six cases against ArcelorMittal.

In light of the very recent civil damages awarded in favour of Nationwide Airlines against South African Airways for abuse of dominance which led to loss of profits, it will be interesting to see whether any civil party elects to prosecute ArcelorMittal for the excessive pricing complaint. In terms of the South African Competition Act and a recent judgment by the Supreme Court of Appeal, it appears as if the door is closed on a civil litigant brining a civil damages claim against a respondent, based on a breach of the competition Act, if there has been no adverse finding made against such a respondent by the Competition Tribunal (or Competition Appeal Court) as per section 65 of the Competition Act.

The admission to having engaged in cartel conduct, may, however, expose ArcelorMittal to civil liability over and above the settlement agreement.

Billing the Billboard Bosses: Advertising trade association fixes prices, members pay fines

The Kenyan antitrust authority, CAK, recently closed its investigation into a classic price-fixing cartel involving the Outdoor Advertisers Association, resulting in a fine of Sh11.64 million (approx. $120,000) imposed on domestic advertising firms for fixing minimum prices of billboard space, reports the Kenya Gazette.  The affected companies include Magnate Ventures Limited (Sh5 million), A1 Outdoor Limited (Sh114,000), Live Ad Limited (Sh2.5 million) and Adsite Limited (Sh2.39 million), while four others had already settled with CAK previously (Consumer Link (Sh1.2 million), Look Media (Sh136,000), Firm Bridge Limited (Sh246,400) and Spellman Walkers Limited (Sh45,180)).  The remaining four trade association members will be fined forthwith.

kenyaNotes Andreas Stargard, a competition practitioner with Primerio Ltd., “[i]n this case — which really represents a classic minimum-price fixing arrangement among trade association members — the billboard owners agreed during a period of less than one year to set a minimum monthly price of Sh160,000 in large Kenyan markets, such as Nairobi.  Interestingly, they price-discriminated geographically within their cartel arrangement and fixed the corresponding fees in smaller markets at a slightly lower amount.”

The head of the CAK, Director-GeneralWang’ombe Kariuki, lamented that a trade group was being used to manipulate an otherwise competitive process of market forces yielding market prices, which he believed are approximately 20 to 25% lower than the fixed rates, based on post-investigation pricing.  Says Stargard:
“It is interesting to see that the CAK has  already followed up on this matter and has noticed an arguably direct empirical result, yielding a beneficial effect of a not insignificant price reduction in advertising costs in Nairobi.”

Shipping Cartel: Recent approach to fining in SA

By Michael Currie

AAT previously reported (here and here) that the SACC had been investigating cartel behaviour which allegedly took place between multiple shipping liners who transported vehicles for various Original Equipment Manufacturers (“OEMs”).

The investigation resulted in two consent agreements being concluded between the SACC and Nippon Yusen Kaisha Shipping Company (“NYK”) and Wallenius Wilhelmsen Logistics (“WWL”) respectively (the “Respondents”).

On 12 August 2015, the Competition Tribunal (“Tribunal”) was requested to make the consent agreements, orders of the Tribunal.

south_africa

In terms of the consent agreements, the Respondents had admitted that they had contravened Section 4(1)(b) of the Competition Act, 89 of 1998 (the “Competition Act”) on multiple occasions (between 11 and 14 instances), and accordingly agreed to pay administrative penalties of approximately R95 million ($ 8million) and R103 million (R8.5 million) respectively.

We had noted in our previous article on this matter, that in light of the SACC’s recently adopted Guidelines for the Determination of Administrative Penalties for Prohibited Practices (the “Guidelines”), it would be interesting to see how the SACC and the Tribunal go about calculating and quantifying an administrative penalty, when dealing with factual circumstances similar to this matter.

We had been concerned that in cases which involve cartel conduct relating to tenders (i.e. bid-rigging), the Guidelines will have limited application.  Andreas Stargard, an attorney with the Africa consultancy Pr1merio, notes:

There are two main reasons why there we view only a narrowly circumscribed application of the Guidelines in these particular circumstances:

  • Firstly, the Guidelines require in the case of bid-rigging that the affected turnover to be used for purposes of calculating an administrative penalty must be the higher of: the value of the bid, the value of the contract ultimately concluded, or the amount of money ultimately paid to the successful bidder. While this approach to calculating affected turnover when dealing with tenders such as those in the construction industry may be useful, the Guidelines present an anomaly when one is dealing with a tender, the value of which is subject to one or more variable and the tender contract has not been completed yet at the time of the calculation or imposition of an administrative penalty.

  • Secondly, and perhaps even more problematic, is that the Guidelines envisage that a party involved in cartel conduct should be fined for the tenders that the party successfully ‘won’, as well as being held liable for tenders that the party ‘lost’. In terms of the Guidelines, a party who was involved in ensuring that another company was awarded the tender (due to collusion), the ‘unsuccessful’ party will be subjected to an administrative penalty for such a tender as well. In this regard, the affected turnover that will be utilised to calculate the administrative penalty for the ‘unsuccessful’ party, the SACC would also choose the greater of the actual value of the bid submitted by the ‘unsuccessful party’, or the value of the contract or the amount ultimately paid to the successful bidder.

This in itself creates two further issues. The first is from a policy perspective; in terms of penalising the unsuccessful bidder, the unsuccessful bidder’s affected turnover would in most instances be either than the affected turnover of the successful bidder higher (because when a firm deliberately ‘loses’ a bid, they usually submit a cover bid which is higher than the ‘winning’ bid), or at a minimum the same value as the affected turnover attributed to the successful bidder. Thus it is conceivable that the ‘unsuccessful’ bidder while not having derived any benefit from the bid in question, would be subjected to a similar or greater administrative penalty than the successful bidder.

Furthermore, for purposes of reaching a settlement quantum, it is often not possible for the ‘unsuccessful bidder’ to know or calculate the value of the contract or the amount paid to the successful bidder. The only way to obtain such information would require information sharing between competitors, which raise a host of further competition law concerns.

Accordingly, while the adoption of Guidelines for purposes of ensuring greater certainty and transparency is created for parties who are potentially subjected to administrative penalties, the Guidelines have respectfully fallen short of doing that, when dealing with instances of bid-rigging.

The difficulty of applying the Guidelines to cases of bid-rigging was acknowledged by the SACC during the shipping cartel hearings before the Tribunal, a consequence of which saw the SACC adopt a novel and individualised strategy to calculating the administrative penalties which the Respondents ultimately agree to.

The SACC decided firstly that whichever strategy they adopt for purposes of calculating the Respondents financial liability, must be one that can be consistently and fairly applied to all respondents in the investigation.

Accordingly, the SACC decided to impose a administrative penalty of 3.5% of the Respondents’ turnover derived within or from South Africa, in respect of bids which the Respondents were awarded, and a lesser percentage of turnover was used in respect of bid’s which were not awarded to the Respondents.

The SACC thus acknowledge that it would not be fair to impose the same penalty quantum on the successful bidder on the unsuccessful bidder as well.

The M/V Thalatta, a WWL High Efficiency RoRo vessel

The M/V Thalatta, a WWL High Efficiency RoRo vessel (image (c) WWL)

When pressed on how the SACC reached a value of 3.5%, the SACC indicated that the Respondents’ willingness to engage the SACC and their commitment to settling the process was a weighty factor taken into account.

Importantly, the SACC decided to penalise each of the respondents cumulatively. In other words, for each instance of a contravention, the SACC imposed a penalty equal to 3.5% of the firm’s annual turnover (or a slightly lesser amount if the firm was the unsuccessful bidder’).

Section 59 of the Competition Act limits the amount of affirms administrative penalty to 10% of the firm’s annual turnover derived within or from South Africa in its preceding financial year.

Due to the fact, however, that the SACC ultimately imposed a cumulative penalty, the administrative penalty imposed on the Respondents exceeded 10% of the Respondents annual turnover.

On a side note, the SACC did use the annual turnover of the proceeding financial year as the based upon which to penalise the respondents, but rather opted to use the year 2012 which was the most recent year during which there was evidence of collusion.

Accordingly, the Commission has exercised a considerable degree of discretion when choosing a strategy for purposes of imposing an administrative penalty and while the SACC considered the sic-step approach to calculating an administrative penalty, opted rather to impose a turnover based percentage figure, and thus, we are left none the wiser as to how the Guidelines are actually going to be interpreted and implemented.

Second domino falls in SA liner-shipping cartel investigation

The M/V Thalatta, a WWL High Efficiency RoRo vessel

The M/V Thalatta, a WWL High Efficiency RoRo vessel (image (c) WWL)

WWL settles collusion allegations in South Africa for US $7,500,000

As we reported on 2 July 2015 (see “Shipping Cartel Update: NYK settles in South Africa“), the South African competition-law enforcers have had success in bringing members of the acknowledged international liner-shipping cartel to the settlement table, extracting R104 million (approximately $8,600,000) from NYK.

Now, Wallenius Wilhelmsen Logistics (“WWL”) has become the second investigated party to enter into a settlement agreement with the South African Competition Commission (“SACC”) — presumptively for a decent discount off the maximum possible fine, as outlined in greater detail below.

south_africa

On 30 July 2015, it was announced that WWL settled the SACC’s charges stemming from the investigation into the seven shipping companies for fixing prices, allocating markets and collusive tendering.

SACC found that WWL colluded on 11 tenders with its competitors in the transportation of motor vehicles by sea issued by several automotive manufacturers to and from South Africa.

WWL — a 50/50 Swedish/Norwegian liner-shipping conglomerate, which has had a representative office in South Africa since 2013 and previously had “a major Turn Key Project for a copper mine in Zambia, … creating a sub-Saharan hub for moving Breakbulk into and out of Africa” — settled for an amount of R95 million.  As Andreas Stargard, an attorney with the Africa advisory boutique Pr1merio, notes:

“This amount — in today’s dollar terms only about $7,500,000 — is a mere 0.25% of WWL’s global turnover of about $2.9 billion.  In other words, the company got away with only a tiny fraction [namely 2.5%] of the potential maximum fine, which under South African law would have been capped at $290 million or 10% of total group revenue.”

The SACC found that NYK colluded on 14 tenders with its competitors for the transportation of motor vehicles by sea issued by several automotive manufacturers to and from South Africa, including BMW, Toyota Motor Corporation, Nissan, and Honda among others.

The agency filed the WWL settlement agreement with the South African Competition Tribunal on 30 July 2015 for confirmation as an order of the Tribunal.

WWL’s Africa Ties

What is of particular note in the WWL matter is the company’s business commitment to the African continent.  As Mr. Stargard points out, WWL recently published a document entitled, “West Africa – The frontier of opportunity?” in which it states:

The outlook for Africa has long been seen as one of great promise, but with major challenges attached. It certainly is a place of great dimensions and great opportunities, but with immense development needs and complexities to be tackled. According to African Economic Outlook, a recent report published jointly by the OECD, the African Development Bank and the UN Development Program, Africa’s economic growth will gain momentum and reach 4.5 per cent in 2015 and 5 per cent in 2016.  

The world’s attention to Africa has largely been directed towards West Africa in the last few years, as some of the fastest growing economies were to be found there, as well as some of the world’s richest resource bases from oil to rare earth minerals. As of late, the shine has come off a little bit, with West African economies struggling with lower oil income, weakening currencies as well as a lack of economical and societal reform. The Ebola epidemic on top of this effectively served to slow the West African growth somewhat. The region is nevertheless expected to stage a recovery from the Ebola epidemic with 5 per cent growth in 2015.

West African growth is largely driven by the development in Nigeria, Africa’s most populous country and largest economy. Despite the large oil revenue dependency (which naturally is hurting from the recent decline in oil prices), the country has started diversifying its economic base. In the automotive industry, several OEMs have opened assembly plants for complete knock-downs, boosted by the increased import tax for finished vehicles. The slow process towards building more advanced manufacturing capabilities continues, but still remains some way off. 

Other economies in the region are smaller and even more dependent on resource exports. A few have been seeing quite positive development, like Ghana, but we still find some of Africa’s poorest countries in this region, highlighting the large contrasts to be found there. 

Trade patterns for vehicles and heavy equipment are, not surprisingly, dominated by imports, with Europe and Asia being the largest regional trade partners. 

In 2014, the single largest country exporting vehicles and heavy equipment to West Africa was the US followed by China, Japan and Germany. This illustrates the diverse geographical trade interests in the region. Trade has been developing strongly after the crisis, but has weakened over the past couple of years.

Long term, given its population and resource base, West Africa remains sure to be on everyone’s target list when it comes to capturing African opportunities.